HP's Whitman Pulls Out the Chain Saw

A workforce reduction that seemed drastic a couple of years ago just became ominous to some industry observers. HP CEO Meg Whitman apparently couldn't shore up the company by slashing 34,000 jobs as originally planned. That number has now mushroomed to 50,000. One bright note: Though shares plunged following the earnings report, news of the cuts gave the stock a lift.

In the wake of a weak second-quarter earnings report, HP has announced it will eliminate 11,000 to 16,000 jobs.

The news was a blow; it was only two years ago that HP announced it would undergo a massive restructuring to move away from its PC roots. As part of that effort, it planned to eliminate 34,000 jobs from its payroll. While the extent of the layoffs was a shock, the company was bolstered by its then relatively new CEO Meg Whitman, who had taken the helm in late 2011 amid predictions that she would act boldly to turn the flagging company around.

This additional round of layoffs is viewed in some quarters as a setback to her plan.

In addition, there is the effect these job losses will have on HP's already-demoralized workforce, something that Whitman acknowledged during the earnings call. "No company likes to decrease the workforce, and we recognize that this is difficult for employees."

However, the company is making improvements, Whitman maintained. "With the first half of our fiscal year completed, I'm pleased to report that HP's turnaround remains on track."

Lagging Numbers

At US$27.3 billion, Q2 net revenue was down 1 percent from the prior-year period and flat on a constant currency basis, HP reported.

The decline is a consequence of HP's "operating in a shrinking personal computer market coupled with weak corporate spending on technology," said Francis Petit, associate dean for executive programs at Fordham University.

"In addition, shares for Hewlett Packard are down 2.3 percent," he told the E-Commerce Times. "Overall, these indicators speak volumes."

Painful, but Necessary

In that light, the job cuts make sense, especially as they are being made in areas where there is duplication. HP is not indiscriminately slashing at the payroll, Petit pointed out. It has indicated that research and development, along with customer-facing jobs, will continue to grow.

It is painful -- but if HP wants to reduce its reliance on the PC market, these steps need to be made, he said.

Executing this strategy while balancing the short-term quarterly dividend demands with the long-term innovation requirements will not be easy, Petit acknowledged.

"CEO Meg Whitman has her work cut out for her," he said.

HP is also burdened by its umbrella structure, which makes engineering a turnaround particularly difficult, said Rob Enderle of the Enderle Group.

There typically is more than one business in trouble with these structures, "so as you focus on one, another goes south -- and there are interdependencies that work against spinning a unit out," he told the E-Commerce Times.

There is good news for HP, though, suggested Enderle. It is doing OK against its peers, and its valuation has been increasing steadily. Also, two breakout technologies -- a high-speed 3D printer and a new memory technology that could transform computing -- are in the pipeline.

"Layoffs clearly remain problematic," Enderle said, "but it is generally better to do them and then get everyone focused on growing the company, than putting them off and placing everyone in greater financial stress."

Erika Morphy has been writing about technology, finance and business issues for more than 20 years. She lives in Silver Spring, Md.